The Evolution of an Investor

Like a lot of people who end up on Wall Street, Blaine Lourd just sort of stumbled in. He'd grown up happy in New Iberia, Louisiana. His father had made a pile of money in the oil patch, and Blaine assumed that he too would one day eat four-hour lunches at the Petroleum Club, hunt ducks on the weekends, and get rich. His older brother, Bryan, had left Louisiana to make what seemed like a quixotic bid to become a Hollywood agent, but Bryan was gay, even if he pretended not to be. (He's now a partner at Hollywood's Creative Artists Agency.) Blaine was distinctly not gay and felt right at home in Louisianaâright up to the moment when, during his third year at Louisiana State University, the price of oil collapsed and took the family business with it. That was when he realized he had no idea what he would do with his life. His chief distinction at L.S.U. was his ascent to the post of social chairman at the Theta Xi fraternity, and while that was nothing to sneeze at, he didnât see how it qualified him to do anything else. His father, after informing him that there was no longer a family business for him to inherit, suggested that his ability to get people to like him might go far on Wall Street. That's what first got Blaine thinking. "I didnât know what Wall Street was," he says. "I didnât even know where Wall Street was." (View slideshow of Blaine Lourd.)

Really, he just wanted to be a success. How that happened, he didn't much care. So in 1987, at the peak of the bull market, he landed a job with investment firm E.F. Hutton in Los Angeles. A few weeks into Blaine's training program, E.F. Hutton collapsed following a check-kiting scandal and was sold to Shearson Lehman. Blaineâs training at Lehman consisted of a monthlong class, which focused mainly on overcoming customers' objections, and a close reading of the bible on how to peddle stocks to people you've never met: Successful Telephone Selling in the '80s, co-written by a Lehman managing director named Martin Shafiroff.

A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

Speak with confidence and authority.

The most important part of the presentation is the close.

Blaine set a goal for himself: Reach 100 people a day by telephone. Half the time, people hung up on him, but about one in every 300 calls led to a sale. He arrived at his office at 6 every morning to make sure he got the best lead cards. Even at that hour, the place was loud and frantic. Traders' hoots and hollers screamed the firmâs need to move a specific block of stock; the TV on the wall blared potentially market-moving news. He was paid on commission and driven by fear of failure. "There were a lot better salesmen than me," he says. "I just worked harder. I made more calls. And if you make more calls, you will get the sales. And it doesnât matter what you say." Most of the time, he just read from the same script as the other brokers: "Are you familiar with Warren Buffett? We have information from our sources on the Street that his next position is going to be in a company much like Cadbury Schweppes. [Pause] I know youâre busy, but I'd like to call you once or twice in the next six months when we have a substantial idea that will make you three to 10 times your money."

When Blaine would call back 10 days later, it almost didn't matter what he said, as long as he demanded an order and then fell completely silent. "Mr. Johnson, this is Blaine Lourd from Lehman Brothers. We see Abbott Labs going to 60, and I think you need to buy 10,000 shares of Abbott Labs today."

Half the time, in the ensuing silence, Mr. Johnson would hang up. But the other half, Mr. Johnson would explain, usually pathetically, why he couldnât right then and there buy 10,000 shares of Abbott Labs. And once Blaine had a specific objection, he had an obstacle he could overcome.

[...]

Still, he was a 29-year-old earning $200,000 a year, and he was, as he puts it, "ramping up the lifestyle." Rival firms noticed his success: He left Bear Stearns for Dean Witter, which would later become Morgan Stanley. Blaineâs business grew to the point where he became somewhat famous. Name a prominent director or big-time movie star, and there was a fair chance that Blaine Lourd was giving her financial advice. He lived near the beach in Malibu, drove fancy cars, and indulged an expensive taste for young women who had moved to Los Angeles to become movie stars. He routinely ranked in the top 10 percent of revenue producers for whichever firm he happened to be working for. In his best years, he grossed more than $1 million. His father had been right: His persuasiveness and ability to get people to like him went far on Wall Street.

Only now he had a problem. He was quickly becoming the world's unhappiest man. He often woke up with a sinking feeling in the pit of his stomach; more often, he woke up with a hangover. Like a lot of his fellow stockbrokers, he started drinking too much.

[...]

For Blaine Lourd, American stockbroker, the mere fact that he landed in the middle of this industry and became a success was reason enough to hate himself. But in Santa Monica, as Blaine twisted himself into ever more intricate knots to disguise his inability to pick winning stocks or money managers, his antithesis was rising. It was a firm founded in 1981 on a simple idea: Nobody knows. Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isnât evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffettâs genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud.

Paw ate four hour lunches and hunted ducks on the weekend and he blamed the collapse of oil prices on losing the business? More like he wasn't tending to the business. Like father like son. Sonny boy should have spent some time in college learning from Pa's failure he should have been back in the oil business.

I always read that Buffett was very hands off, i.e. he does not really "run businesses". He basically finds businesses that are well-run and have his general business acumen and then lets them generate the cash.

In fact, he really does not have time to do run a business from what I've seen. He's extraordinarily well-read and investigates a variety of markets and sectors.

The only business that I think he may get his fingers into is insurance as I have read he is extremely knowledgeable down to the day-to-day operations and mathematics of it all.

..The only business that I think he may get his fingers into is insurance as I have read he is extremely knowledgeable down to the day-to-day operations and mathematics of it all.

But if you know something different, I'd like to know...

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he did that because he knew it was in trouble. In the 2005 report, Bufett discussed the use of derivatives..."In light of the ambiguities associated with the use of derivaties, many firms could find thenselves with unexpectedly large obligations that they cannot handle. " For this reason, Buffett was in the process of extricating his firm's insurance units from obligations relatiing to derivaties, ... As a result, Berkshire Hathway has lost more than $400 million on these transactions. -James Maccaro, Traders.com magazine Aug 06.

he did that because he knew it was in trouble. In the 2005 report, Bufett discussed the use of derivatives..."In light of the ambiguities associated with the use of derivaties, many firms could find thenselves with unexpectedly large obligations that they cannot handle. " For this reason, Buffett was in the process of extricating his firm's insurance units from obligations relatiing to derivaties, ... As a result, Berkshire Hathway has lost more than $400 million on these transactions. -James Maccaro, Traders.com magazine Aug 06.

Speaking of Warren Buffett, I am looking at the Berkshire Hathaway stock price chart, symbol BRKA. Price keeps increasing. It is as if money was transferred out of banks and securities brokers stocks and invested in BRKA. BRKA price might be about 20 % greater now compared to January 2007.